Comparison of 2 Portfolios: Undiversified and Diversified Among Industries of Kazakhstan.

3195 WordsFeb 20, 201213 Pages
I. Introduction. a. Objective(s). It is out of doubt that no matter how diversified the portfolio is, systematic risk can never be eliminated. The risk associated with individual stocks can be reduced, but general market risks affect almost every stock. So it is important to diversify between different asset classes and industries as well. The key is to find a medium between risk and return. The objective of this paper is to discuss importance of diversification of investment portfolio within industries and project the theory on the example of two portfolios. The first portfolio tends to be undiversified and consists of shares of companies from banking sector. The undiversified portfolio is as follows: Portfolio 1…show more content…
While it is recognized that the other component of risk, systematic or market risk, cannot be diversified away, investors expect to achieve significant portfolio benefits by diversifying their stock holdings across industries and sectors, thereby reducing or possibly eliminating the company-specific risk (Jones, 2007). Current paper considers two portfolios containing solely equity securities shares of the companies. The reason for that was mainly limited availability of data and presentation purpose from solely academic perspective. For the analysis purposes, there were used credible sources of information. The main of them are as follows: • Kazakhstan Stock Exchange (KASE) website • Dow Jones Factiva • Brown/Reilly, Analysis of Investment and Management of Portfolios, 9th edition (textbook) During an analysis, there were used different works of famous researchers and scientists like Markowitz, W. Sharpe and Treynor. III. Findings and Analysis (Main body of the report). The authors of the paper decided to find out whether they achieve a diversification benefit when they compose portfolio consisted of a shares from different industries of Kazakhstan, as diversification is a strategy used mainly to minimize risks and losses. Different industries

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